In case you have been busier than usual, here are the relevant financial headlines from last week. Each headline can affect your 401(k) value in a big way going forward.
More proof of higher-than-expected inflation. Russian troops surround Ukraine on three sides. With war ships in the sea on the fourth side.
U.S. interest rates are higher across the board. Before the Federal Reserve takes steps to raise interest rates times before year end.
All told, it is a small wonder that U.S. stock market have held up in value as well as they have to date.
It is too early to conclude that an economic recession and/or a stock bear market is inevitable. But it is not too early to become more aware of this growing list of stock market negatives. And the potential danger to your 401(k).
All these economic, geopolitical, and economic events have a great deal to do with your 401(k).
I do not know for sure. Even if I did, few readers of this blog post would believe me. Or take any of the important 401(k) investment management steps I am going to recommend here.
Individual 401(k) participants should use any stock market rally to reduce their risk. Said another way, it is a suitable time now to think about a meaningful rebalance of your 401(k).
Stock market prices have been unable to break above recent highs. Stock market indices have been unable to hold on to those higher price levels.
Here is the worse part of the current stock market environment for your 401(k). Stock market weakness from current prices will retest or break below recent lows.
Failures to hold on to recent highs. Inability to hold above recent lows. The stock market risk to 401(k) investors is high now. The preservation of 401(k) principal is necessary. At least until the current stock market risk level subsides.
Set a mental or emotional “stop loss.” How much money-in dollars or percentages-you are willing to give up from 401(k) account values?
The stock market continues to fall. Interest rates continue to rise. These are timely and relevant 401(k) management questions now.
Your 401(k) is currently in a very vulnerable position. That is because no one can say with any degree of confidence that the next big stock market move is higher or lower.
All you can do now is to manage your 401(k) stock and bond market risk to the best of your ability. And with all the tools available to you.
The most effective 401(k) investment management decision now is to preserve principal. In most cases, which means selling the worst mutual funds you own now in your 401(k).
You are likely up-to-your-ears invested in the recent high-flying high technology growth stocks. Apple, Microsoft, Amazon, Facebook, and Alphabet. These stocks all contributed to year-end 2021 all time-high 401(k) account balances.
But the tone of the stock markets has shifted. For all the reason listed above. It is now more important to preserve the value of your 401(k) now that to try to continue to grow its value.
The stock markets may make the decision to move significantly lower. The entire world knows interest rates are going to rise.
Your full participation in the next great stock market decline is not required. Preserve the last several years of stock and bond market investment gains.
Ric Lager
